The ZAR weakened on the back of Risk off sentiment, following calls of a global recession and more hawkish rhetoric from various Fed governors.
The Rand weakened on the back of recession talks as well as hawkish comments from Fed governor James Bullard.
- Bullard calling the re-opening of China as a risk of inflation and that might tempt the Fed to keep rates above 5% for longer than anticipated.
- The markets re-acted negatively with the SP500 falling more than 1.5% and the ZAR weakening back above 17/$.
- `Earlier in the session US PPI data printed lower,
- The PPI coming in at 6.2% vs 6.5% expected and a previous release of 7.2%.
- The lower than expected PPI confirming what CPI indicated, that we have likely seen that inflation has peaked.
- SA inflation also lower and heading towards the SARB 3-6 band.
- Stats SA reporting SA CPI at 7.2% vs 7.4% previous YOY.
- Although inflation hawks, now use the re-opening of China as a concern for inflationary pressures,
- It is important to note that, during the pandemic, the closing of China was directly behind the Supply-bottlenecks the West encountered.
- The lack of production in China, directly associated to the rise of inflation.
- Hence, the re-opening of China would and should have the opposite effect and we should see inflation become even more subdued.
- The Bond market, unlike its equity counter parts, ignoring the doom and gloom forecasts for inflation with the 10Yr yield at 3.32%
- Traders citing, safe-haven buying, but in my opinion, it is more likely associated with the decline in inflation.
Data this week
- 15h30 : US BUILDING PERMITS 1.37M EXPECTED VS 1.35 PREVIOUS *** traders will look the data to see how it relates to current doom and gloom recession talks.
- 15h30 : US WEEKLY JOBLESS CLAIMS 214K EXPECTED VS 205K PREVIOUS
Market Movement Today:
- The Rand under pressure on the back of global risk aversion.
- The local unit trading around the upper end of the weekly range at 171600.
- Traders ignoring benign inflationary data but focussed on Fed officials who continues to push for rates above 5%.
- Earlier US PPI and SA CPI all showed that data inflation have likely peaked.
- The US10YT at 3.32% confirming this mood.
- Market nervous around recession talks, but we continue to look at the macro environment and this allows for more ZAR gains.
- The Rand like all risk assets, appear to pay attention to the gloom and thus we see a lower local unit.
- The reality is that lower US rates, will have a negative effect on the Dollar (via THE CARRY TRADE).
- And the ZAR will benefit from this scenario.
- US 10YR BONDS 3.32%
- SA 10YR BONDS 9.67%
TRADE : SELL USDZAR ON RALLIES
- USDZAR : Expect a range 16.9200-17.3100
- Importers 17.0500-16.9200
- Exporters 17.1800-17.3100
- EURZAR : Expect a range of 18.3400-18.6100
- Importers 18.4300-18.3400
- Exporters 18.5200-18.6100
- GBPZAR : Expect a range of 20.9300-21.2900
- Importers 21.0500-20.9300
- Exporters 21.1700-21.2900
- USDZAR 17.0900
- EURZAR 18.4600
- GBPZAR 21.0800
- ESKOM, we remain at stage 6 with the country experiencing 4 hours of load shedding at multiple periods per day.
- The ANC’s caucus in Parliament wants every single Eskom power station manager to account for the breakdowns and poor management.
- This after South Africans are without electricity for up to 12 hours daily.
- Several sources told News24 that the meeting, which blurred the lines between the party and government, took place on Monday night,
- where Public Enterprises Minister Pravin Gordhan, Energy Minister Gwede Mantashe and the Eskom leadership were peppered with questions on the rolling blackouts.
- Mantashe doubled down on claims that he’s not to blame for load shedding
- He said, ‘I don’t build power stations’. EWN
Loadshedding continues to affect the real economy,
- The South African Poultry Association (SAPA) said that load shedding severely impacted its process to slaughter chickens, which could lead to shortages across the country.
- The association said that in the past six weeks, it had to reduce the number of chickens it slaughtered because of its backlog caused by extended power cuts.
- The association said it had to cull 10 million chicks in the past few weeks.
- As franchises, such as KFC, struggle with chicken supply as a result of load shedding, SAPA said that this could affect the retail sector. EWN
- The Department of Public Works and Infrastructure (DPWI) advised its clients to find alternative sources of energy like solar energy due to a shortage of generators.
- The department is responsible for maintenance and the management of all government buildings.
- Last week, the Johannesburg High Court moved its proceedings online due to interruptions caused by load shedding.
- Acting judge president Ronald Sutherland accused the department of providing unreliable generators.
- However, the department clarified that the court failed to procure diesel for generators. News24
- SA’s annual inflation rate was 7.2% in December of 2022, down from 7.4% in the prior month,
- but still above the upper limit of the South African Reserve Bank’s target range of 3%-6%.
- It was the softest reading since last May, as prices continued to slow down primarily for transportation (13.9% vs 15.3% in November), of which fuels (22.8% vs 25.3%).
- Slower increases were also seen for food & non-alcoholic beverages (12.4% vs 12.5%); source: Statistics South Africa
- On Wednesday, the Dow tumbled 1.81%, the S&P 500 dropped 1.56% and the Nasdaq Composite lost 1.24%,
- Those moves came as investors digested disappointing retail sales data and weaker-than-expected producer inflation reading in the US that fuelled recession fears.
- Hawkish remarks from Federal Reserve officials. St. Louis Fed President James Bullard said rates were not yet restrictive and could rise up to 5.5% by year-end.
- While Fed’s Mester and Harker also backed more rate increases.
- US stock futures steadied on Thursday after a broad market selloff during Wednesday’s regular session,
- as markets continued to grapple with economic uncertainties while assessing the outlook for monetary policy.
- Futures contracts tied to the three major indexes were all trading near breakeven.
- US 10 Year declined to 3.34% on Thursday January 19, according to over-the-counter interbank yield quotes for this government bond maturity.
- Earlier St. Louis Fed President James Bullard said a reopened China makes him “nervous that will lead to upward pressure on inflation.”
- He said, the end of China’s stringent Covid restrictions quickens the country’s economic recovery, concerns about pent-up Chinese demand
- — and the inflation that may follow — could mean bad news for the U.S. Federal Reserve.
- Economic data indicates that the Fed’s aggressive rate hikes are pulling down U.S. inflation,
- but China’s demand could make commodity prices return to levels from early 2022,
- before the U.S. central bank embarked on its journey of hiking rates to bring down inflationary pressures.
- The 10YR treasury however ignoring all the rhetoric trading lower after US PPI once again printed lower.
- The Dow declined 613 pts to 33,296
- The Sp500 fell 62 points to 3,928
- The Nasdaq fell 138 to 10,957
- The dollar index steadied above 102 on Thursday after dipping briefly to an over 7-month low of 101.53 in the previous session, as investors digested weak US data and hawkish remarks from Federal Reserve officials.
- Latest data showed the US retail sales declined more than expected in December while US producer prices fell the most since April 2020, stoking concerns over a potential slowdown.
- Meanwhile, Fed’s James Bullard said rates were not yet restrictive and could rise up to 5.5% by year-end, while Fed’s Loretta Mester and Patrick Harker also backed more rate increases.
- The dollar has come under renewed pressure this year as the annual inflation rate in the US slowed for a 6th straight month to 6.5% in December,
- It was the lowest reading since October 2021, raising hopes that inflation peaked at 9.1% in June.
- The data cemented expectations that the Fed will downshift to a smaller 25 basis point rate hike in February after delivering a half-percentage point increase in December. Fx news
- Asian markets sharply lower following a decline on wall street.
- In Japan, the Nikkei 225 fell 1.44%, snapping a two-day advance and taking cues from a negative lead on Wall Street as fears of a global economic slowdown.
- The sentiment overshadowed optimism about a slower pace of central bank policy tightening.
- Investors also digested data showing Japan recorded another trade deficit in December as import growth outpaced export growth.
- On Wednesday, Japanese stocks rallied sharply after the Bank of Japan defied expectations of another policy adjustment by maintaining its ultra-low interest rates and leaving its yield control policy unchanged.
- WTI crude oil fell below $79 per barrel on Thursday, extending losses from the previous session as disappointing US data fanned recession fears.
- Latest data showed the US retail sales declined more than expected in December while US producer prices fell the most since April 2020,
- The data raising concerns over a potential slowdown.
- Data from the American Petroleum Institute also showed that US crude inventories increased by 7.6 million barrels last week, defying expectations for a 1.8 million barrel decline.
- Meanwhile, the International Energy Agency said in its latest outlook that global consumption will reach a record daily average this year led by a demand recovery in top crude importer China
- Saudi Aramco also said that it was optimistic about oil consumption as China recovers and air travel rebounds. Gulf energy news
- Gold held above $1,900 an ounce on Thursday, hovering near its strongest levels in nine months on firm expectations that the US Federal Reserve will slow the pace of its interest rate hikes.
- Meanwhile, the metal came under pressure in the previous session amid hawkish remarks from Fed officials who backed further rate increases,
- though weaker-than-expected US retail sales and producer inflation data that fuelled recession fears tempered rate hike concerns.
- Markets are currently expecting the US central bank to downshift to a smaller 25 basis point rate hike in February after delivering a half-percentage point increase in December.
- Elsewhere, consumer prices in the UK also fell for the second straight month in December, adding to further signs that inflationary pressures may have finally peaked. Kitco metals